An article in the Philippine Daily Inquirer titled “SSS shatters a retiree’s dream of financial security” caught my attention even it was written four years ago. The person who wrote the article applied for his retirement benefits when he turned 60 years old. He was very excited to open the letter from the SSS telling him about how much would be his monthly pension. He was very surprised and dismayed on what he saw: 4300 pesos per month only. After contributing to the SSS for more than 30 years, he will only receive 4300 pesos per month, an amount that could only cover his utility bills. Where will he get money for food, medicine and other expenses? His kids are graduates of reputable schools and perhaps have good paying jobs, but do you expect him to just ask money from his kids? What if his kids could not support him because they have their own families to support already? Without other sources of money, there is a big chance that he will have a retirement filled with financial insecurity and even poverty. There is a big chance that he needs to continuously work after age 60 to support his needs. If you are age 60 or above, there are fewer employment opportunities for you and the bigger problem is you may not have the strength and energy to work anymore.
The Commission on Audit (COA) has reported many asset mismanagement in the SSS over the years. There are properties that are idle and not generating income for the SSS. There were bad investment decisions that cost contributing members millions in losses. There was an issue of unjustified big bonuses given to the senior officials of the SSS despite millions of pensioners complaining very small monthly pension.
In recent years, the SSS management has increased the monthly contributions of members to increase the life of the SSS trust fund. I just have the feeling that the assets and investments of SSS are not generating enough to increase the life of the SSS fund that is why they need to collect more from the members. The bad thing is that the salaries of contributing members are not keeping up with inflation or the rise of the cost of basic goods and services. With higher SSS contribution in addition with unreasonable tax deduction, a regular employee has a smaller take home pay for his family.
The life of the SSS fund is not guaranteed. It can go bankrupt in the future and there is no guarantee that the Philippine government will rescue just in case it will happen. (Of course, we pray and hope that it will never happen). Many millennials like me are afraid that we will retire with a bankrupt SSS in the future. Instead of feeling financial security, we feel financial insecurity. Even if the government will rescue a bankrupt SSS in the future, expect a big reduction in benefits that they will provide for the retirees and contributing members.
Have a Plan B for Retirement
As a financial advisor, I have been teaching and convincing my clients to have another retirement plan besides SSS or GSIS. I always tell them that the monthly pension given by SSS or GSIS will never be enough to meet retirement expenses. To have a comfortable retirement in the Philippines, they should have other sources of retirement income. I perform financial needs analysis to compute their needed retirement fund. Most of the time they are shocked how big the needed amount is. I tell them that the amount might be big but it is not impossible to achieve it if they start saving and investing early. There are many investment vehicles that they could use to save up for their retirement. These investment vehicles provide better return than regular bank deposits. Here are some of them:
- Direct Stock Investing – For only 5000 pesos, you can already open an account in a local stock brokerage company like COL Financial and BPI Trades. Using your account in the brokerage company, you can buy common shares from a publicly traded company in the Philippine Stock Exchange such as PLDT, Jollibee, SM Prime Holdings, Ayala Land, Meralco, Universal Robina, ABS-CBN, Manila Water and among others. When you buy common shares of a specific company, you legally become a “part owner” of that company. How do you earn from stock investing? Your investment in these companies may grow over years through the appreciation in the value of your common shares and through dividend earnings or your share to the company’s profit.
- Mutual Fund Investing – For only 5000 pesos, you can also open an account in a mutual fund company. The minimum subsequent investment is just 1000 pesos. A mutual fund company pooled funds/money from various individuals or institutional investors. The fund managers of this mutual fund company will manage the fund with the objective of making profits/gains for the investors. Unlike, direct stock investing, mutual fund investing provides you the opportunity to use the talent and skills of fund managers who have many years of investment experience. Since you are also investing in a pooled fund, your money is automatically diversified among different publicly listed companies. The fund managers collect a small fee ranging from 1-5% as fund management fee. Among the popular mutual fund managers and distributors include Sun Life Asset Management Company Inc. (SLAMCI), PhilEquity Management Inc., First Metro Asset Management Company Inc. (FAMI), and Philam Asset Management Inc (PAMI). (Yours truly is a licensed mutual fund advisor for SLAMCI. Learn how to open a Sun Life mutual fund here.)
- UITF Investing – UITF or unit investment trust fund is almost the same with mutual fund but the main difference is that it is offered and managed by commercial banks such as BDO, BPI and Metrobank. The minimum investment is also 5000 pesos with minimum subsequent investment of 1000 pesos. In mutual funds, you buy shares in your chosen fund and you become a shareholder; in UITF, you buy units of participation in the trust fund but you will not become a shareholder of the fund or the bank. You earn in UITF through the appreciation of value of the units you bought from the trust fund.
- Single Pay Variable Unit-Linked (VUL) Insurance Plan – This is a life insurance product that requires big one time investment that ranges from 100,000 pesos and above. This type of insurance caters for individuals who are looking for an alternative channel where they can invest their money. This plan actually has a low insurance component, about 25% of the amount you invest. For example, if you invest 1 Million pesos, the amount of life insurance is 250,000 pesos. All your money (less charges) will be invested in the fund of your choice such as equity, index, bond or balanced fund. There is 1-5% charge to be deducted from your investment by the insurance company to cover fees. Since this plan has less charges, your money will grow faster. To understand Single Pay VUL more, read this.
- Regular Pay Variable Unit-Linked (VUL) Insurance Plan – This is a life insurance plan that is usually payable in 5, 10, 15, 20 or more years. The shorter the payment period is, the premium becomes higher. The longer the payment period, the cheaper the premium becomes. Unlike, single pay VUL. regular pay VUL plan provides bigger life insurance coverage with affordable monthly premium. For example, for as low as 3,000 pesos per month, you can have a life insurance coverage of 1 Million pesos. You also have the option to add riders or additional benefits such as disability income and critical illness coverage. A portion of your premium is invested in a pooled fund of your choice, almost similar to a mutual fund which is managed by professional fund managers. You can choose among equity, index, bond and balanced funds. Over time your money in the pooled funds will grow an you can use it for your own retirement. The other portion of your premium will pay for insurance and admin fees. Sun Life offers affordable regular pay VUL plans such as Sun Maxilink Prime, Sun Maxilink Bright and Sun Flexilink.
There are other ways to increase your retirement fund but those I mentioned above are the common ways. I am also thinking of investing on rental properties as way to augment your retirement income in the future but this will be discussed in another article. If you have other bright ideas, share them in the comment section below.